Bank and Demat Accounts Are 'Property' Under CrPC – Freezing Without Notice Not Illegal If Linked To Offence: Telangana High Court Upholds Seizure In IPO Fraud Probe

Telangana High Court, in a significant ruling, upheld the validity of freezing orders issued by the CID under Section 102 of the Code of Criminal Procedure, 1973. The freezing orders targeted demat and bank accounts allegedly linked to misappropriated IPO funds in an economic offence involving Anil Agrawal and several corporate entities. Justice M. Satyanarayana Murthy ruled that demat and bank accounts fall within the definition of "property" under Section 102 CrPC, and that such accounts can be lawfully frozen without prior notice, provided the investigating officer records a reasoned suspicion of their nexus with the offence under investigation.

“Seizure of Property Includes Freezing of Bank and Demat Accounts”: Court Affirms Legal Validity of Section 102 CrPC Application

The petitioners, including M/s. Hooghly Ship Breakers Ltd., M/s. Comfort Intech Ltd., and related corporate entities, had approached the High Court under Section 482 CrPC, challenging the freezing of multiple demat and bank accounts by the Economic Offences Wing (EOW), CID, Telangana. These accounts were suspected to be linked to fraudulent diversions of ₹29.10 crores raised via the IPO of Ravi Kumar Distilleries Ltd. (RKDL).

The petitioners argued that the freezing orders were illegal, lacked procedural compliance (especially under Section 102(3) CrPC), and violated the principles of natural justice. However, the Court found that:

“Accounts of the petitioners were freezed by a prohibitory order… freezing of the same is nothing but seizure of the property, since the accounts of the petitioners are considered as property for the purpose of Sec 102 CrPC.” [Para 54]

Referring to the Supreme Court’s authoritative pronouncement in State of Maharashtra v. Tapas D. Neogy, (1999) 7 SCC 685, the Court reiterated that both movable and intangible assets such as bank and demat accounts qualify as "property" and may be seized under Section 102 CrPC during an investigation.

Allegations of IPO Fund Diversion and Fabrication of Documents

The case originated from allegations made by the de facto complainant, RKDL, against Anil Agrawal—director in several Comfort Group companies. It was alleged that Agrawal misused cheques and blank stamp papers handed over during IPO facilitation arrangements, siphoning IPO funds into shell companies and his associates' accounts. Forensic examination and bank statements indicated manipulation of a cheque for ₹7.49 crores and laundering of ₹29.10 crores through numerous demat accounts, all tied to the accused entities.

The CID’s investigation led to a freezing order issued on April 27, 2017, under Section 102(1) CrPC. Petitioners claimed they learned of the freezing only later, and that no proper satisfaction or notice was given, rendering the action arbitrary and unlawful.

Maintainability of Petition Under Section 482 CrPC

The High Court emphatically held that the petitions filed under Section 482 CrPC were not maintainable, given that the CrPC provides a specific remedy under Section 457 for seeking custody or release of seized property:

“When direct remedy is available in the statute i.e., CrPC, the petitioners instead of availing said statutory remedy approached this Court invoking inherent jurisdiction… they can be relegated to approach the Court under Section 457 CrPC.” [Paras 67, 69]

The Court relied on judgments including State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335, R.P. Kapur v. State of Punjab, AIR 1960 SC 866, and Bombay and Madras High Court decisions which clarified that the inherent powers of the High Court must not be invoked when statutory remedies exist.

Recording of Satisfaction Under Section 102(1) CrPC

The Court rejected the contention that the investigating officer had not recorded requisite satisfaction. It noted that:

“The Deputy Superintendent of Police, CID Telangana recorded his satisfaction… that the amount of the 2nd respondent is misappropriated by Anil Agrawal… and therefore requested the 3rd respondent to freeze the accounts.” [Para 71]

Thus, compliance with the requirements of Section 102(1) CrPC was duly established.

Prior Notice and Intimation Under Section 102(3) CrPC

Petitioners strongly contended that the failure to give prior notice or prompt intimation to the Magistrate invalidated the freezing orders. The Court ruled otherwise:

“Section 102 CrPC shows that no such prior notice or intimation is contemplated before passing prohibitory orders… mere intimation is sufficient.” [Paras 73–75]

The Court cited the Teesta Setalvad and Shyamlal Mohanlal Choksi rulings to hold that while intimation to the Magistrate is mandatory, delay in doing so does not render the seizure invalid. The court observed that such intimation was, in fact, eventually given, and any delay was curable and not fatal:

“Non-compliance of Section 102(3) CrPC does not vitiate proceedings… The purpose of intimation is only to enable the Magistrate to dispose of the property.” [Paras 82, 89]

The Court also observed that no specific plea regarding Section 102(3) compliance had been raised in the original petitions and hence, such a ground could not be entertained for the first time during oral arguments.

Prejudice Caused to Petitioners

While acknowledging that freezing accounts hampers daily business operations, the Court held that such hardship is not sufficient to invalidate otherwise lawful seizure:

“Freezing of accounts certainly causes prejudice… but not illegal prejudice warranting interference under Section 482 CrPC.” [Para 88]

Petitions Dismissed, Petitioners Directed to Seek Relief from Magistrate

The High Court concluded that the investigating officer’s actions were in compliance with statutory requirements under Section 102 CrPC and that:

“None of the grounds urged by petitioners are sufficient to exercise power under Section 482 CrPC… petitioners are relegated to a remedy under Section 457 or 451 CrPC.” [Paras 90–92]

The petitions were dismissed, with liberty granted to the petitioners to seek appropriate relief before the jurisdictional Magistrate, either during or after the conclusion of the investigation.

This judgment significantly clarifies the scope of Section 102 CrPC in the context of economic offences involving corporate and financial fraud. By affirming that bank and demat accounts are “property” liable to seizure, and holding that delay in Magistrate intimation or absence of notice is not fatal, the Court has fortified the legal framework for investigating financial crimes.

Equally important is the reaffirmation that Section 482 CrPC cannot be used to bypass specific statutory remedies, emphasizing procedural discipline even in complex white-collar crime cases. As the court reminded:

“When the property was seized and intimation given to the Magistrate… the remedy available to these petitioners is only under Section 457 CrPC.” [Para 60]

Date of Decision: September 3, 2025